[Epoch Times, September 9, 2022](Reported by Epoch Times reporters Ning Haizhong and Luo Ya) Under the shadow of the debt explosion and loan breakout storm, sales have plummeted again. Reproduce the call sign for “stay alive”. In addition to selling land to survive, not taking land, and laying off employees, is there no recruiting in the industry? Do you have to wait for the government to bail out? Experts believe that China’s real estate is in the process of shrinking when the bubble bursts, and the root of the problem lies in the institutional weaknesses of the CCP.
“At present, Zhongnan’s biggest achievement is to survive, resist risks, prevent risks, and normalize operations and production,” said Chen Jinshi, a 60-year-old chairman of Jiangsu real estate company Zhongnan Construction Company, at the 2022 interim performance meeting. This was originally the slogan uttered by Yu Liang, Chairman of the Board of Vanke, at the Vanke Autumn Internal Regular Meeting in 2018.
The sales of “Central South Construction” in 2021 will reach 197.3 billion yuan, and Chen Jinshi’s net worth once exceeded 7 billion yuan. However, in the first half of 2022, the company’s sales plummeted to 33 billion yuan, with a net loss of 3.38 billion yuan. In order to maintain the timely repayment of public debts, Zhongnan was forced to sell 14 project equity.
An article published by Tencent News “Prism” on September 6 wrote that “Zhongnan Construction” is just a typical microcosm of the overall bleakness of the industry, and “survive” has become the most realistic portrayal and even goal of the real estate industry.
According to statistics from the Sinolink Securities Research Report, the revenue of 64 sample real estate companies in the first half of the year fell by 11.5% year-on-year, which was the first time since 2017 that it was negative.
According to the statistics of Leju Finance and Economics, among the 2022 semi-annual reports disclosed by 169 listed real estate companies, 129 reported a year-on-year decrease in net profit attributable to the parent company, accounting for 76.3%; , with a total loss of over 59.5 billion yuan. Only 40 real estate companies have maintained positive earnings growth.
It is worth noting that many real estate companies such as Evergrande, Sunac, Shimao, Aoyuan, and Kaisa have defaulted on their debts, and their financial reports have so far been difficult to produce.
According to the analysis of “Prism”, the reason behind this is that the high-priced land purchased in the past few years has entered the settlement cycle, and real estate companies are trying to reduce the price and promote the sales scale, or sell the asset project at a low price, which results in the recoverable amount of assets being significantly lower than the book value. However, sales costs such as operations have increased relatively. After the reduction of the balance sheet is cleared, the net profit level will undoubtedly be lowered. This trend has continued since the second half of last year.
According to CRIC statistics, in the first half of 2022, the full-caliber sales of the top 100 real estate companies were 3,470.6 billion yuan, a year-on-year decrease of 50.3%. Among the top 30 real estate companies, the overall year-on-year decline was 42.64%. Only Guangzhou state-owned Yuexiu Property maintained positive sales growth (+3.2%). Among them, Shimao and Zhongnan both fell by more than 70%.
Looking at the vertical comparison of price changes, the unit price of Country Garden, the “king of the third and fourth tiers”, dropped from 7,994 yuan in the first half of 2021 to 7,458 yuan in the first half of this year; Longfor, which focuses on the first and second tiers, dropped from 17,272 yuan to 17,272 yuan. 16,549 yuan; Agile, which is struggling to pay off its debts, dropped directly from 15,539 yuan to 12,848 yuan; thunderbolt Sunshine City dropped from 15,067 yuan to 14,332 yuan…
Expert: After the bubble bursts, it shrinks all the way
Taiwan’s general economist Wu Jialong told The Epoch Times on September 9 that the current situation of China’s real estate is similar to the contraction after the bubble burst.
“In the contraction process of the bubble burst, assets are shrinking, so people will wait for cheaper to buy. The result of waiting and seeing is that the price continues to fall, because the buyer does not come, the seller has to bargain again, a vicious circle. As a result, the expectation of price reduction is reduced. become a self-fulfilling prophecy.”
According to the “Prism” report, Chen Yuhan, Chen Jinshi’s daughter and general manager of Zhongnan, complained that under the guidance of “saving the industry, not saving the enterprise, saving the project, not saving the enterprise”, the effective support for the enterprise was not enough. For example, the slogan of incremental financing is very loud, but it is difficult to implement. It is necessary to sacrifice more assets or liquidity to achieve “drinking poison to quench thirst” financing.
Yan Jianguo, chairman of the board of directors of China Shipping, said that the solution to the problem mainly depends on two aspects, one is the overall trend of the macro economy, and the other is the progress of solving the difficulties encountered by the insurance companies.
In addition, after the loan cessation wave, compared with the crisis of trust in delivery caused by private enterprises that exploded one after another, at this interim report performance meeting, the central state-owned enterprise developers emphasized the guarantee of delivery, trying to improve brand safety. Zhang Zhichao, chief executive of China Shipping, a state-owned enterprise, said, “Under the current situation, securing the handover is not a problem for us, but a competitive advantage.”
Xie Tian, a professor at the University of South Carolina, told The Epoch Times on September 8 that the mid-year reports of Chinese real estate companies show that the real estate market is becoming more and more tense, and it is expected that its downward trend will be more pronounced in the second half of the year. A series of policies introduced by the CCP seem to be of no help. It may be an extravagant hope for real estate companies to survive, because they themselves do not know where to live.
Wu Jialong believes that if the authorities really want to save the real estate, it may be possible to apply the previous model of the CCP’s rescue of state-owned banks, that is, the People’s Bank of China and several big banks will pay to set up an asset management fund, and then these funds will undertake better projects. assets. For example, to support Evergrande, package and sell the assets, and the asset management fund will take over and activate the assets, but it may take twenty or thirty years to deal with it slowly. Let real estate companies survive in the short term. However, he believes that the CCP is now running out of state funds.
“On the one hand, the problem is oversupply, overinvestment, and building too many houses. Also, China’s population is shrinking, the demand for real estate is declining, and real estate companies are destined to shrink. In addition, the overall economic situation is not good. , the current real estate bubble is about to burst, basically there is no way to save it.”
He believes that the problem of China’s real estate is not just a problem of private enterprises. State-owned enterprises may alleviate some immediate difficulties, but it is not the solution in the long run, because the real estate industry did not have restrictions at the beginning and did not make choices. The country relies on real estate to support the growth of GDP. This road will never work. The CCP’s economic countermeasure has always been to use infrastructure investment and fixed investment in fixed assets to promote the economy. As a result, a large amount of funds and resources are used in the real estate industry. The industry is oversupplied, which is structural and long-term.
Analysis of not taking land and selling land to survive: land finance is an institutional disadvantage
Under the background of poor external financing, developers can only rely on selling land and properties to survive.
Take Agile, which is struggling to repay its debts, as an example. It claims that the cash flow from operating activities in the first half of the year was 4.3 billion yuan, which is a sharp increase from 930 million yuan at the end of 2021. However, compared to the first half of last year, which spent 10.5 billion yuan to acquire 22 land parcels, in the first half of 2022, Chen Zhuolin, the leader, not only acquired zero land, but also earned 3.3 billion yuan in revenue through the sale of company interests, properties, factories, and joint ventures. In addition, the average sales price of the company’s real estate has also dropped by nearly 2,700 yuan per square meter year-on-year, and 11,139 employees have been laid off within one year.
On September 1, Agile announced that it would continue to sell land and sell its equity in two projects in Jinan for 680 million yuan.
On the other hand, developers, especially private enterprises, began not to acquire land, or avoided third-, fourth-, and fifth-tier cities.
According to statistics from Crane, as of the end of June 2022, 30% of the top 50 real estate companies have not yet acquired land. If we focus on the key 22 cities, this proportion exceeds half. State-owned and state-owned enterprises are the main force in acquiring land, accounting for 74%, including China Shipping, China Resources, and China Merchants. Private enterprises are almost invisible, with only 25% of the land acquisition amount, and they are concentrated in a few enterprises such as Longfor and Binjiang.
At the same time, even if land is acquired, housing companies have begun to collectively focus on first- and second-tier cities, and the third-, fourth-, and fifth-tier markets seem to be being abandoned. As of the end of June, 83% of the investment amount of the top 100 real estate companies was concentrated in 22 key cities, and only 17% outside the 22 cities.
Ms. Wang, an insider in the mainland real estate industry, revealed to The Epoch Times on September 7 that their company has not acquired much land, and now there are many layoffs.
“The biggest problem now is that real estate doesn’t preserve its value, especially in many third- and fourth-tier cities, where real estate prices have dropped significantly, so we all hope to take land in first- and second-tier cities, and now the selection of land will be more stringent, and we will not rashly go for it. It’s not like in 2019, 2020 or before, you can just grab a piece of land and make money as long as you get the land. Now everyone is grabbing land in first- and second-tier cities.”
Ms. Wang said that there are relatively few land resources in first- and second-tier cities, but if the land is not acquired or stored, the result will be extremely shrinking immediately, and the entire lifeline will stop.
Ms. Wang said, “What everyone is doing recently is layoffs, and we’ve started laying off people like crazy again.”
She said that everyone thinks this is a very dangerous industry, they are all going downhill, and they are all looking for a transformation. “Originally, everyone wanted to go to commercial real estate, but for commercial real estate, the vacancy rate of commercial real estate in first-tier cities, like Shanghai, is very high, so everyone is now figuring out how to go.”
According to statistics from CRIC, the inventory of real estate in third- and fourth-tier cities is currently high, and the generalized inventory of 45 non-key cities by the end of 2021 is 664 million square meters, which will take 5.25 years to digest. Xie Yangchun, senior research director of the Crane Research Center, said in July that the shortage of cash flow is also the trigger for the contraction of real estate companies’ investment in third- and fourth-tier cities.
Taiwan’s general economist Wu Jialong told The Epoch Times that the root cause of China’s real estate problem is that when the Communist Party came, private property rights were abolished and land was nationalized. Later, because of financial pressure, we had to sell land and grant land to obtain financial revenue and engage in land finance. Real estate companies are actually white gloves of the powerful.
“But what people buy is not the ownership, but the right to use it. In the end, because the real estate can no longer be built, the local government does not dare to approve the land. Who will the developers approve the land to build and sell to? The entire industry is over-invested, Overexploited. So it’s not going down the road.”
Wu Jialong said that the real estate crisis reflects the weakness of a system that the CCP has to face. That is, it uses the GDP growth rate to assess local officials, not only absorbing foreign investment and absorbing investment from Taiwanese businessmen, but also how much land can be approved to obtain fiscal revenue. Its entire administrative assessment is related to land, until it finally fails and the entire economic bubble bursts.
Responsible editor: Fang Ming#